Conservatives Backpedal on Capital Gains Promise

“I think the absence of the capital gains promise the Finance Minister’s speech is an implicit admission that this proposal is dead," said Liberal Finance critic John McCallum. “This comes as no surprise since the Conservatives’ promise is both administratively and fiscally impossible.”During the election campaign, the Conservatives promised to make all capital gains exempt from taxation, as long as the funds were reinvested within a six month period. The proposal was widely criticized by economists because of difficulties in implementation as well its prohibitive cost.“The capital gains proposal is administratively impossible because tax authorities are unable to follow a particular dollar from capital gain on Stock A to reinvestment in Stock B to reinvestment in a cottage,” McCallum continued. “All the experts I have consulted confirm this view. It simply cannot be done.”The Conservatives’ promise is also fiscally impossible to put in place, without a return to deficit. Simon Fraser’s Public Policy Professor Jon Kesselman estimates the capital gains tax deferral would cost around $1.5 billion per year rather than the $150 million per year that was budgeted in the Conservative election platform. TD Chief Economist Don Drummond agrees, calling the cost of the program “grossly understated”. The capital gains proposal has not found support from those advocating a more competitive tax system either. Leading economist Jack Mintz of the C. D. Howe Institute did not include the capital gains tax in his list of twelve areas needing reform in his 2005 Tax Competitiveness Report. Not only is the capital gains proposal bad policy, but it also shows Canadians where the Conservatives priorities lie. This tax loophole would provide a $6-billion benefit for the wealthiest one percent of Canadians. In fact, it is so egregiously tilted in favour of the very rich that even the Bush administration found a similar US proposal too much to stomach. It seems that not a day goes by that the Conservative Party doesn’t break a campaign promise. Perhaps this time though, the Conservatives have realized what was immediately obvious to both financial experts and average Canadians– that their proposal is administratively, fiscally and morally impossible to implement.